Monies reserved to settle class action lawsuits often go unclaimed because absent class members cannot be identified or notified or because the paperwork required is too onerous. Rather than allow the unclaimed funds to revert to the defendant or escheat to the state, courts are experimenting with cy pres distributions—they award the funds to charities whose work ostensibly serves the interests of the class “as nearly as possible.”
Although laudable in theory, cy pres distributions raise a host of problems in practice. They often stray far from the “next best use,” sometimes benefitting the defendant more than the class. Class counsel often lacks a personal financial interest in maximizing direct payments to class members because the fee is just as large if the money is paid cy pres to charity. And if the judge has discretion to select the charitable recipient of the unclaimed funds, she may select her alma mater or another favored charity, thereby creating an appearance of impropriety.
The above quotes from two of the primary players in the for-profit college industry highlight the industry’s polarizing and divisive regulatory issues. This industry has seen unprecedented growth in recent years, increasing enrollment by 225% from 1998-2008. In fact, for-profit colleges received $32 billion in federal grants and loans from 2009-2010. This number accounted for about 25% of all federal student aid distributed despite the industry enrolling only 10-13% of all college students (about 2.4 million students). The prominence and growth of for-profit colleges is highlighted by one for-profit college’s recent entry into a Division I athletic conference.
However, recent reports of fraudulent and deceptive recruiting, and high student default rates have plagued the industry, culminating in the release of a negative Senate report by the Health, Education, Labor, and Pensions Committee (“HELP Report”). One such report was an undercover U.S. Government Accountability Office (“GAO”) report of fifteen for-profit colleges that found that each school made questionable or deceptive recruiting statements. Additionally, the HELP Report found that the average tuition at for-profit colleges exceeds that of their respective public school counterparts (for certificate programs, associate’s degrees, and bachelor’s degrees). For example, a bachelor’s degree in business administration at the for-profit Alta College in Colorado costs $80,466 compared to $60,704 at the University of Colorado Boulder.” Moreover, the Education Department recently released the three-year cohort default rate from 2009, measured by the percentage of student borrowers who entered repayment and defaulted within the past three years for a given school. The three-year default rate was 22.7% in the for-profit college sector compared to only 11% in public colleges and 7.5% for nonprofit private colleges.
McLaughlin v. Phillip Morris USA, Inc., has been certified as a nationwide class action on behalf of an estimated 50 million “light” cigarette smokers. Plaintiffs seek more than $280 billion in damages, to be trebled to over $800 billion. In certifying this mass tort, District Judge Jack B. Weinstein announced his plan to completely abandon individualized adjudication in favor of aggregate factual determinations based on evidence from statistical samples. Prior to McLaughlin, at least two federal trial judges had permitted the use of sampled evidence in major consolidated or class action trials, but both included some adjudication of individual claims. In McLaughlin, Judge Weinstein’s plan would entirely eliminate proof of individual class member claims in the face of the overwhelming cost of gathering such evidence from tens of millions of plaintiffs. The central issue in the interlocutory appeal now before the Second Circuit is the legality of Judge Weinstein’s plan to use sampled evidence to determine whether the plaintiff class members relied on representations by the defendants that “light” cigarettes were less harmful than regular cigarettes, and, if so, to determine the aggregate amount of damages.
In this Article, we address and defend Judge Weinstein’s controversial proposal to statistically sample evidence, rather than to obtain evidence on an individualized, case-by-case basis. We endorse his view that statistical sampling combined with other evidence “is a necessary and pragmatic evidentiary approach that reflects full due process in this and many other mass tort cases.”